Ultraleisure Ltd v Stapleton & Ors [2009] EWHC 67 (Ch)

[2009] EWHC 67 (Ch)Case No SC-00031
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue LEEDS DISTRICT REGISTRYDate 21/01/2009
Before
MR JUSTICE DAVID RICHARDS
Between
ULTRALEISURE LIMITED (IN LIQUIDATION)Claimant(1) ROBERT FRANCIS STAPLETONDefendants(2) JULIA STAPLETONDefendant
John McDonnell Q.C (instructed by Lieberman) for Claimant for The Defendants did not appear and were not representedHearing Hearing dates: 20,24,25,26 November 2008
Judgment ApprovedMr Justice David Richards :Introduction
[1]In this action, Ultraleisure Limited (“the company”) acting by its liquidator seeks relief against two former directors in respect of alleged misappropriations in excess of £3m.[2]There are a number of unusual features of the case, not least that the company went into insolvent liquidation in 1983 and the misappropriations are alleged to have occurred in the period 1978 to 1982. This has led to defences based on delay: limitation, laches and the inability now to conduct a fair trial of the claim, which I consider later in this judgment.[3]The defendants are husband and wife. The second defendant, Julia Stapleton, was charged and in December 1986 convicted after a lengthy trial at Lincoln Crown Court on 20 counts of false accounting and obtaining pecuniary advantage by deception, all in relation to the affairs of the company. The former finance director, Richard Coles, was also convicted on similar charges. Mr Stapleton has been out of the country since late 1985 and has thereby avoided prosecution. Efforts have continued to be made to seek his arrest and extradition.[4]Neither Mr nor Mrs Stapleton were represented or appeared at the trial. They had earlier been represented by solicitors and counsel. A defence was settled, and later amended in response to amendments to the particulars of claim, by leading counsel on their behalf and there was active participation in the proceedings in the earlier stages. Since acting in person, Mr Stapleton has played virtually no part, but Mrs Stapleton has been more active, principally in seeking adjournments of the trial. I shall refer to this later in more detail.[5]The company started business in 1974 as a manufacturer and installer of squash courts. From about late 1978 it also carried on a construction business, principally in relation to sports centres. It was at all times controlled by Mr Stapleton, who owned 80% of its shares and was its chairman and managing director. He also controlled a number of other companies carrying on associated businesses, owned as to 80% by himself. The remaining 20% of these companies was owned in general by his first wife or, following his divorce, by his second wife Julia Stapleton.[6]The business of the company included the export of pre-fabricated squash courts and their installation in a number of European countries and the construction of two sports centres in Denmark. In connection with this business, the company obtained financial support from the Export Credit Guarantee Department (“ECGD”) of the Department of Trade and Industry in the form of guarantees of loans made principally by Coutts Bank and Lloyds Bank.[7]The criminal charges against Mrs Stapleton and Mr Coles related to the company’s dealings with ECGD and the Banks. By forging invoices and other documents, they caused or assisted the company to obtain loans, and guarantees by ECGD for such loans, of some £3.5m in the period from April 1978 to March 1982.[8]In 1989 ECGD brought proceedings against Lloyds Bank in the Commercial Court, which were settled in 1993 on terms which involved a substantial payment to ECGD and which also involved a withdrawal by ECGD of its proof in the liquidation of the company. This is important for the purposes of the present proceedings because it means that the company does not claim in respect of any loss incurred as a result of the fraudulent obtaining of the loans.[9]The claim relates not to the obtaining of the funds by the company but to the subsequent misappropriation, as the company alleges, of those funds to the extent of some £3m. The claim, as stated in paragraph 6 of the particulars of claims, is that the defendants wrongfully and dishonestly and in breach of their fiduciary and contractual duties as directors and employees of the company misappropriated sums in excess of £3m. The means by which these funds were obtained is not an essential element to the claim. A claim of misappropriation could and frequently does lie in respect of funds which have been obtained by a company in an entirely honest manner, whether by subscriptions for shares, borrowing or as a result of trading. It is sufficient for the present claim to establish that funds held by the company were misappropriated by the directors.[10]The means by which the funds were obtained is not, however, irrelevant. It explains how the company came by the allegedly misappropriated funds and, importantly if established, it demonstrates that Mr and Mrs Stapleton were prepared to and did act in a seriously dishonest manner in relation to the company. There is an important difference here between Mr and Mrs Stapleton. As a result of her conviction, there is under s.11 of the Civil Evidence Act 1968 a rebuttable presumption that she committed the offences of which she was convicted. The onus was on her to establish that she had not committed the offences, and she did not in the event attempt to do so. By contrast, the company would have to establish this part of the case against Mr Stapleton. In the light of the case made against him as it relates directly to the alleged misappropriations, and the evidence in support of it, I have not found it necessary to determine whether and, if so, how far he was involved in the frauds practised on ECGD and the banks. Nor, as will become clear, have I decided the case against Mrs Stapleton in reliance on or by reference to her convictions, except as establishing her propensity to dishonesty in relation to the company.[11]In this judgment I will deal with the issues in the following[12]Mrs Stapleton twice applied in person, by telephone, for an adjournment of the trial. The first was at the pre-trial review on 13 October 2008 and the second was on 20 November 2008, the day which had been fixed for the start of the trial. I refused the application on both occasions, giving my reasons and refusing permission to appeal. When Mrs Stapleton made her second application, I made clear to her that she could rely on all points and was not confined to a change of circumstances since 13 October 2008.[13]Her grounds for an adjournment were, first, that the burden of defending the proceedings as a litigant in person were too great and that she required legal representation; secondly, she needed more time in which to obtain legal representation; thirdly and in any event she needed more time to prepare for trial; fourthly, she could not afford to travel from the Republic of Ireland where she lives, to England for the trial and to stay in England for the duration of the trial and that she needed time to raise the necessary funds for this purpose.[14]The present proceedings were served in September 2005, together with a freezing order against the defendants made by Lloyd J. The defendants retained solicitors, Levi & Co., on their behalf. The original particulars of claim were very short and alleged, without particulars, misappropriations of £3.5m. A defence settled by leading counsel was served. It denied any misappropriations and it raised limitation and laches as defences. A request for further information was also served.[15]In the first half of 2006 substantial amendments were made to the particulars of claim, pleading at length the frauds practised on ECGD and the banks, and itemising the alleged misappropriations. Further information of the amended particulars was sought and in July 2006 was provided. In particular, the further information set out at length and in detail the case in relation to each of the alleged misappropriations. The company’s case as presented at trial has not essentially departed from the detailed allegations there set out.[16]In November 2006 an amended defence, again settled by leading counsel, was served. It dealt with each of the allegations of misappropriation.[17]The company had given disclosure in March 2006. Directions for disclosure no later than 14 days after service of the amended defence were not complied with, but the defendants’ position has been that they have very few documents.[18]In November 2007 Levi & Co. successfully applied to come off the record through lack of funds. At the beginning of February 2008 the defendants’ formally engaged new solicitors, Orchard Cameron Banfill, later OBG Cameron Banfill (“OBG”), who went on the record for them.[19]On 1 April 2008 directions were given for disclosure by the defendants and under existing directions there was to be mutual exchange of witness statements not more than four weeks thereafter. The case was listed for trial starting on 17 November 2008. On 30 May 2008 HHJ Behrens ordered that the company be permitted under CPR 32.8 to serve witness summaries of the evidence of 96 witnesses consisting of their statements taken by the police for the prosecution of Mrs Stapleton and Mr Coles. Most of those statements went to the frauds committed against ECGD and the banks but a small number related also to the alleged misappropriations.[20]By June 2008, OBG were not in funds and on 10 June 2008 they told the defendants that they would no longer be able to act for them. They agreed for the time being to remain on the record, principally for the purpose of the service of documents. They formally came off the record in September 2008.[21]The company served a substantial witness statement by its former liquidator Mr Paul Finn with many pages of exhibits, mostly comprising the police statements and exhibits. Neither Mr Stapleton nor Mrs Stapleton served any evidence.[22]Although Mr and Mrs Stapleton knew from about 10 June 2008 that OBG would not be acting for them, no replacement solicitors were appointed by either 13 October or 20 November 2008. It is their case that they do not have the funds to instruct new solicitors. If that is correct, it is not a position which is likely to change. At the pre-trial review, Mrs Stapleton mentioned the possibility of public funding but this was no more than speculation and there was no evidence to suggest any likelihood that it would be granted.[23]I did not then consider, nor do I now consider, that the case against the defendants was so complex that they could not deal with it without legal representation. As I have made clear, the case is essentially concerned with substantial payments alleged to have been made to or for the benefit of Mr and Mrs Stapleton or companies owned by one or both of them. From the applications made by Mrs Stapleton, it appeared that it was she, rather than her husband, who was wishing to take part in the proceedings. She should have been able to explain what she knew about the alleged payments and, to the extent that she knew about them, the justification for them. As to her stated financial inability to attend the trial, the liquidator offered to fund her expenses of doing so, but she firmly declined the offer.[24]In all the circumstances I did not consider that it was right to adjourn the trial. Mrs Stapleton provided a witness statement dated 19 November 2008. Most of it was simply a repetition of the pleaded defence as regards the alleged misappropriations. She did not, of course, attend the trial for cross-examination on her statement. Applications by the defendants[25]Although the defendants have recently done little to address the substance of the case against them, they have been active in the proceedings in other respects. On or about 19 November 2008, Mr and Mrs Stapleton sent three application forms to the court. Two were issued on 24 November 2008, after a fee exemption was granted, and I am unclear whether the third was issued. By one application, issued on 24 November 2008, Mr Stapleton sought an order striking out the proceedings on the grounds, as stated in the application notice, that “there is no point in pursuing this claim. There is no commercial gain to be achieved”. The basis as stated in part C of the notice is that the defendants “have no funds to satisfy judgment if it is made against them”. I am very doubtful that this is an application which the court would entertain at the suit of the defendant to proceedings. The court can of course control the conduct of a liquidator and in an insolvent liquidation will consider an application such as this made by a creditor. On the hearing of such an application, which would be in private and in the absence of the defendant, the court could consider confidential, including privileged, material which the liquidator could put before the court as justifying the continuation of the proceedings. Mr Stapleton claims to make the application in his capacity as a shareholder but, as the company is, as he asserts, insolvent, he has no interest as a shareholder which gives him standing to make the application.[26]Even if the court would entertain an application such as this, it would need to be supported by detailed and complete evidence of the defendant’s financial circumstances and the defendant would have to make himself available for cross-examination. Mr Stapleton has done neither of these things and I dismiss his application.[27]By the second application issued on 24 November 2008, Mrs Stapleton seeks an order striking out the proceedings on the grounds that “this claim breaches Art. 6.1 of the European Convention on Human Rights”. This application is based on delay in bringing the proceedings and I will consider it with the other issues related to delay.[28]The third, perhaps unissued, application was made by Mrs Stapleton for security for costs. If it has been issued, this application was made at or just after the start of the trial, is far too late and I dismiss it on that ground. As Mrs Stapleton states in part C of her application notice, the issue of security for costs was first raised on behalf of the defendants by their solicitor in a letter dated 6 April 2006. She states further that Levi and Co. raised it in further correspondence. No application was, however, made to the court for an order for security for costs. Limitation[29]As already mentioned, the causes of action relied on by the company are that the defendants “wrongfully and dishonestly and in breach of these duties as aforesaid, misappropriated sums in excess of £3m” belonging to the company. The duties in question are fiduciary duties as directors and contractual duties as employees.[30]In further information of the particulars of claim, the company stated that by its liquidator it first became aware of the alleged misappropriations during 1984. Any limitation period therefore commenced, at the latest, by the end of 1984.[31]The claims for breach of contract, and any claims in tort, were therefore time-barred by the date of the issue of the claim form in January 2005. However, the claim for dishonest breach of fiduciary duty falls within s.21(1)(a) of the Limitation Act 1980 as “an action by a beneficiary under a trust, being an action in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy” to which by the express terms of s.21(1) no period of limitation applies.[32]Fraud for these purposes connotes at the minimum an intention on the part of the trustee or director to pursue a particular course of action, either knowing that it is contrary to the interests of the beneficiaries or company or being recklessly indifferent whether it is contrary to their interests : Armitage v Nurse [1998]Ch 241 at 251 and 260, Gwembe Valley Co. Ltd v Koshy (No 3) [2004] 1 BCLC 131 at paras 131 – 132. Where a director causes a company’s funds or services to be provided to himself or to his family or to companies substantially owned by him or them, with no significant benefit to the company, the necessary degree of knowledge to establish fraud may be inferred, particularly where the defendant could but has not given evidence. Laches/fair trial[33]Laches applies to claims for equitable relief, including equitable compensation for breach of duty as claimed in the present action. It essentially consists of a substantial lapse of time coupled with the existence of circumstances which make it inequitable to enforce the claim, such as the destruction or loss of evidence by which the claim might have been rebutted as a result of the lapse of time : Snell’s Equity (31st ed) para 5–19. In order to make it inequitable to enforce the claim there must be an element of unreasonable failure by the claimant in not bringing the claim earlier. A consideration of a defence of laches involves a balance between the reasons for the claimant’s inactivity on the one hand and the consequences for the defendant on the other hand. It requires a broad approach, directed to ascertaining whether it would in all the circumstances be unconscionable for a party to be permitted to assert his claim : Frawley v Neill [2000] CP Rep 20 per Aldous LJ.[34]Mr McDonnell Q.C for the company submitted that laches was inapplicable because the claim is subject to express provision in s.21(1) of the Limitation Act. In the light of the decision of the Court of Appeal in In re Loftus, decd [2007] 1 WLR 591, this submission must fail : see paras 33–41 per Chadwick LJ. While considering the defence of laches, I will at the same time consider the alternative but closely related point which is pleaded, that the delay in bringing the proceedings has made a fair trial impossible. The court has jurisdiction to stay or strike out any proceedings on this basis. It is not, as is laches, limited to claims for equitable relief. See Fisher v Brooker [2008] Bus LR 1123.[35]It is necessary to set out briefly the important points in the chronology. The company was wound up on 13 June 1983 and Mr Paul Finn was formally appointed its liquidator in December 1983. In the course of his investigations he became aware during 1984 of the alleged misappropriations and evidence suggesting fraud in relation to the company’s dealings with ECGD and the banks. He made a report to the Lincolnshire police who commenced an enquiry. In October 1985 the police executed a search warrant at Mr and Mrs Stapleton’s house. Mr and Mrs Stapleton had by then bought a house in Spain to which they had moved permanently. On a visit to England in November 1985, Mrs Stapleton was arrested and charged with an offence in relation to the dealings with ECGD and the banks. She was held on remand for three months and then remained in England on bail until her trial in November and December 1985. She was, as I have mentioned, convicted on 20 counts and given a suspended prison sentence. In his sentencing remarks, the judge made clear that if Mr Stapleton were tried and convicted on similar charges he would face a substantial term of imprisonment.[36]Mr Stapleton did not return to England but continued to live in Spain with which the United Kingdom did not then have an extradition treaty. When a treaty was agreed, it was not retrospective. In proceedings in the Republic of Ireland to which I shall shortly refer, there was dispute on the written evidence as to whether Mr and Mrs Stapleton left for Spain in order to avoid prosecution, but Mr Stapleton made clear that after his wife’s arrest he decided that he would remain in Spain to avoid arrest and prosecution in England. So far as is known, he has not since returned to the United Kingdom.[37]On 31 October 1985 the company acting by its liquidator commenced an action against Mrs Stapleton in respect of improvements to the matrimonial home registered in her name, which is one of the subjects of present proceedings. The claim was issued at that stage because it appeared that Mr and Mrs Stapleton were preparing to sell it and had mortgaged it to Banco de Bilbao. On 1 November 1985 an ex parte injunction was granted restraining dealings by Mrs Stapleton with the house. A statement of claim was served on 22 January 1986 and a defence settled by counsel was served on 12 May 1986.[38]For a number of reasons the liquidator did not proceed further with this action nor did he issue proceedings in respect of the other alleged misappropriations. First, the house was sold in December 1986 by Banco de Bilbao as mortagee at a price which left no equity. Secondly, the liquidator was only able to investigate fully the alleged misappropriations with access to the documents of the associated companies because many of the company’s own accounting records were missing. He became liquidator of all or most of these companies but the last of them did not go into liquidation until July 1986. Thirdly, there were only very limited funds available to the liquidator. Fourthly, and most importantly, ECGD commenced proceedings against Mr and Mrs Stapleton in July 1986 claiming damages for fraud, negligence and breach of contract. On 28 March 1988 ECGD entered judgment in default of notice of intention to defend for £3,337,158. The size of the claim and of the judgment was such as would be almost certain to lead to the defendants’ bankruptcy. No purpose would be served by the issue by the company of its own proceedings against the defendants.[39]ECGD also brought proceedings against Lloyds Bank in 1989 which were, in November 1993, settled on terms that Lloyds Bank paid £2.3m to ECGD and that ECGD withdrew its proof in the liquidation. ECGD took no steps to enforce its judgment against Mr and Mrs Stapleton and following the settlement with Lloyds Bank had little interest in doing so.`[40]With the settlement of ECGD’s action against Lloyds Bank, the liquidator decided that he should pursue claims against Mr and Mrs Stapleton. By this time, they had left Spain and their whereabouts were unknown. It is now known that in 1991 they had left Spain for France and in 1994 moved to the Republic of Ireland, of which Mr Stapleton is a citizen.[41]Their whereabouts became known only in October 2001 when an investigative journalist informed the police and the liquidator. The police requested the liquidator not to approach Mr and Mrs Stapleton until a decision had been taken as to whether to proceed against Mr Stapleton and seek his arrest and extradition. There was understandable concern that he would otherwise abscond. Mr Finn considered that he should comply with this request, particularly because he was, as liquidator, an officer of the court, and in my judgment he was right to do so.[42]The review of the case by the police and the CPS took some time but a decision to proceed and seek Mr Stapleton’s extradition was taken in November 2003. A European arrest warrant, the regime for which came into force on 1 January 2004, was issued on 15 January 2004 but a decision was taken as to whether in this and other cases not to proceed until the Irish Supreme Court had determined an appeal in a different case which raised important relevant issues and until further Irish legislation, which was enacted in 2005.[43]Mr Stapleton was arrested on 14 September 2005, on which day the present proceedings were also served. Lloyd J as Vice-Chancellor had on 27 January 2005 made a freezing order to be served in due course with the proceedings, and had been fully informed of the circumstances.[44]Mr Stapleton successfully resisted the application for his extradition in the Irish High Court but the decision was unanimously reversed by the Supreme Court, sitting as a court of five judges, on 26 July 2007. Mr Stapleton was not of course then under arrest and he has not in fact been extradited, having apparently disappeared.[45]Much of the argument in the Irish Courts related to the lapse of time since the offences had been allegedly committed and whether there could be a fair trial. As to the latter, the Supreme Court held that it was a matter for the English criminal court. As to the lapse of time, the Supreme Court expressed in strong terms its view that this was largely the responsibility of Mr Stapleton:
“On the evidence, the Respondent was responsible for all delay from 1985 to 2001, when the Lincolnshire police first became aware that he was residing in Ireland. He made a deliberate decision to reside in Spain in 1985, at a time when he knew that he was wanted in the United Kingdom for trial on charges, other than those relevant to the present application. He failed to answer for his bail. A bench warrant was issued, but he declined to return to the United Kingdom. Even if he swears that he was unaware of the absence of extradition arrangements between the United Kingdom and Spain at that time, it is quite clear that he became aware some time thereafter – at a time when he was aware that his wife was arrested in the United Kingdom for offences linked to the present offences – that he was safe in Spain. It is an obvious inference from his affidavit that he made a considered decision to remain in Spain. His suggestion that he was living “openly” in Ireland from the end of 1994 does not impress. The Lincolnshire police did not know that he was here until September 2001. The only contact between the Respondent and the Lincolnshire police was in 1986, when the Respondent via Spanish lawyers, made a series of allegations of wrongful behaviour against the police. There was undoubtedly some delay from 2001 until 2004 when the initial steps for the issue of the Arrest Warrant were taken. Mr Canton explained the need to establish that the evidence was still “viable”
. He reported back to the Crown Prosecution Service in June 2002. Advice from counsel was needed. This and other steps seem to have taken up to November 2003, when a decision was taken to seek extradition. The United Kingdom authorities decided to await the entry into force of the new European Arrest Warrant procedure and the outcome of one of the first legal cases concerning that new procedure. There is no doubt that the comparative slowness of all these procedures may well be open to criticism. However, each of the steps taken was in itself reasonable. A final decision as to the periods involved can best be made by the English courts in the context of any application that may be made to stay the trial. Taken in the overall context of lapse of time, any delay from 2001 is comparatively minor. The major delay was from 1985 to 2001. The Respondent must bear the entire responsibility for that period. The authorities already cited support the rather obvious proposition that a person will not be heard to claim that delay in the prosecution of extradition proceedings is unfair or oppressive, where he has himself been the author of the delay. For this additional reason, therefore, I would reject the Respondent’s reliance on delay or lapse of time. He was himself the principal culprit.”[46]The conclusions which I draw from the sequence of relevant events is that, first, the liquidator acted reasonably in not pursuing the 1985 proceedings against Mrs Stapleton and in not issuing proceedings against Mr and Mrs Stapleton during the 1980’s and early 1990’s. In particular, in view of ECGD’s proceedings against them and the default judgment, such proceedings would have served no purpose. Secondly, when the liquidator decided to bring proceedings after the settlement of ECGD’s claim against Lloyd’s Bank, the whereabouts of Mr and Mrs Stapleton were unknown. The liquidator was unable to serve proceedings until it became known in November 2001 that they were living in Ireland. Responsibility for this period lies with Mr and Mrs Stapleton. Thirdly, the liquidator acted properly in acceding to the police request that he should not alert Mr Stapleton to the fact that his current address had become known until he had been arrested.[47]In considering whether the lapse of time has led to a loss of evidence required by Mr and Mrs Stapleton to defend the claim, two points should first be noted. First, they did not defend the claim for over £3m brought against them by ECGD. There is no good reason to suppose that they would have taken any different course if the liquidator had commenced and served proceedings before they moved from Spain in 1991. Secondly, it is very unlikely that their ability to defend proceedings by the liquidator materially deteriorated between November 2001 and September 2005.[48]So far as whether there is serious prejudice caused by the lapse of time to the ability of Mr and Mrs Stapleton to defend the claim and whether there can be a fair trial of the claim, there are three areas in particular to consider: the availability of documents, the availability of witnesses and the memories of Mr and Mrs Stapleton and other witnesses of the relevant events. The main concerns as to both documents and witnesses raised by Mr and Mrs Stapleton relate to the dealings with ECGD and the banks. So far as concerns the alleged misrepresentations, the documents available to the liquidator in the 1980’s remain available. Mr and Mrs Stapleton refer in their defence to some documents which might have been available to them in the 1980’s and which they say would have helped to rebut some of the claims. This should be examined by reference to particular allegations, not used as a blanket objection to the continuance of all claims. The principal witnesses relevant to the alleged misappropriations – for example, Mr C Cooke, Mr M.N. Cook, Mr R.E Ford, Mr B. Olsen – were willing and able to give oral evidence at the trial. Mr and Mrs Stapleton have not pointed to any witnesses relevant to the alleged misappropriations who would not have been available to give evidence. As to the dimming of memories, that is something for which the court can make proper allowance when it hears the evidence. It might in particular instances mean that the company could not establish its case, but again that it is a matter to be considered as it arises, not as a general ground for a complete stay of the proceedings.[49]Whether or not there can be a fair trial after a long lapse of time is not a theoretical question, depending simply or at all on the number of years which have passed. It is an entirely practical issue to be decided as regards each claim in the case on the basis of the evidence available, and not available, which is relevant to each claim. This is illustrated by Fisher v Brookes (supra) where a fair trial of a claim arising out of events nearly 40 years previously and involving extensive oral evidence was held to be possible by the trial judge, a decision affirmed on appeal.[50]As will appear when I come to consider the misappropriations alleged in this case, I am satisfied that a fair trial is possible.[51]In considering the effect of possibly missing documents it is important to keep in mind that neither Mr Stapleton nor Mrs Stapleton have themselves given evidence as regards the alleged misappropriations, beyond the defence as repeated in Mrs Stapleton’s witness statement. The significance, if any, of missing documents would be easier to assess if they had given oral evidence and been subject to cross-examination. The court would be readier to accept that a particular document had existed but was missing and would, if available, support the defendants’ case, if they had given a credible account of their defence in evidence. Article 6 (1) of the European Convention on Human Rights[52]Mrs Stapleton’s application to strike out the proceedings on the grounds of breach of Art. 6(1), which guarantees in the determination of civil rights “a fair and public hearing within a reasonable time”, is made on the basis of “excessive delay entirely the responsibility of the claimant” and “that the delay is due to the actions or rather lack of action on the part of the claimant”. The delay complained of is that which occurred before the issue of the proceedings. As already noted, responsibility for the delay lies principally with the defendants, not the claimant.[53]Article 6(1) protects against delays which are the direct or indirect responsibility of the state in not bringing proceedings, once issued, to a fair and public hearing within a reasonable time. This is shown by all the decisions of the European Court of Human Rights cited by Mrs Stapleton in support of her application. No complaint is however made, nor could I think be made, of the time taken to bring the proceedings to trial once they were issued. Article 6(1) is not directed at delays which are the responsibility of the claimant in not issuing proceedings over a long period, but it is that delay of which Mrs Stapleton complains.[54]It may well be that the requirement of Art. 6(1) for a “fair trial” requires the State to have in place procedures for staying or dismissing proceedings where, as a result of a lapse of time, a fair trial is no longer possible. As I have explained, English law has such procedures and I have applied such procedures, concluding that a fair trial is still possible.[55]I therefore dismiss Mrs Stapleton’s application based on an alleged breach of Art. 6(1). Claim in respect of alleged misappropriations[56]The company’s claim relates to 14 items of alleged misappropriation, which I deal with below under 11 headings. As I earlier mentioned, the detailed allegations in respect of these claims are set out in further information of the particulars of claim served in July 2006.[57]The company must prove its case. The fact that the defendants were not represented and did not appear at the trial does not relieve it from this requirement. It is the duty of the court to scrutinize the evidence and determine whether and to what extent the company’s case is established. I have thought it right to have regard to what is pleaded by way of defence and stated in witness statements made by the defendants, even though they have not appeared. Since they have not made themselves available for cross-examination, the weight to be attached to what they have said, unless corroborated, is necessarily very slight.[58]The evidence comprises a witness statement of Mr Paul Finn, who was the liquidator until 2005, and who undertook the relevant investigations as liquidator of both the company and most of the associated companies to which many of the claims relate. He therefore had access to the books and records of those companies as well as the company itself. Where, therefore, he gives evidence that there is no record of any payment by, say, an associated company to the company, this is generally based on the books and records of both companies. Mr Finn also gave oral evidence.[59]The rest of the evidence on which the company relies comprises statements given by witnesses to the police in the course of their investigation in 1985 – 86. Some of these statements contain evidence directly relevant to the alleged misappropriations. Some of the witnesses gave oral evidence at the trial in 1986, while many of the statements were read without the defence requiring the witnesses to be called. At the pre-trial review on 13 October 2008, I directed that the defendants should give notice by 1 November 2008 of any of the witnesses whom they required to be tendered for cross-examination. No such notice was given and I admitted the statements without the need for any of the witnesses to attend to give oral evidence.[60]One of the witnesses whose statements contain relevant evidence is Christopher Cooke, who was the senior accountant below board level employed by the company. He gave evidence for the Crown but had been involved in at least some of the fraudulent conduct which was the subject of the charges. In his summing-up, the trial judge not only gave the usual warnings about accomplice evidence but went on to say that although the facts were a matter for the jury “I am still going to make the comment that you may think that he is about as unreliable a witness as you could wish to find and you will not be surprised if I do not refer over-much to his evidence”. I have treated his statements with great caution.[61]As I said earlier, I shall deal first with each of the alleged misappropriations and then deal with whether and, if so, to what extent each of the defendants is liable in respect of them. The Spindles[62]The Spindles is a detached freehold house at Far End, Boothy Graffoe, Lincoln. It was purchased by Mr Stapleton for £48,000 in or about July 1979. Following his marriage to Mrs Stapleton in May 1980 title to the property was transferred to her.[63]The liquidator’s case is that between August 1979 and March 1980, and again between March and October 1982, extensive works were carried out at the house to a value of £80,000 and £75,000 respectively, at the expense of the company. In their defence, Mr and Mrs Stapleton admit that works as identified in the particulars of claim were carried out by the company. They allege that Mr Stapleton reimbursed the company in respect of the wages paid to the company’s employees for the time they worked at The Spindles. They also allege that after completion of the works, the works were valued by a quantity surveyor in consultation with Adrian Booth, the partner in the firm of accountants responsible for the company’s audit and Mr and Mrs Stapleton’s tax affairs. They are unable to recollect the amount of the valuation but do recall that it was significantly less than £155,000. They allege that Mr Stapleton was entitled to a bonus, which was fully approved by the auditors, equal in amount to the valuation of the works and there was a set-off between the two. In addition, they allege that certain of the works were not carried out by the company and were paid for personally by Mr Stapleton.[64]The company acting by its liquidator issued proceedings against Mrs Stapleton in respect of these works in October 1985. A statement of claim was served in January 1986 and a defence settled by counsel was served in May 1986. It was admitted that the works had been carried out. As regards the works in 1979–80 the agreement, approved by Mr Booth, for a set-off was pleaded, although rather than referring specifically to a bonus it was said that the work would be paid for by way of contra entries in the company’s accounts in respect of sums owed to Mr and Mrs Stapleton. Further work, for which the company claimed £12,000, was admitted but the sum was said to be excessive and more than covered by expenses said to be owed by the company to Mr Stapleton. As regards the indoor swimming pool, constructed in 1982, it was pleaded that it was agreed between the company and Mr Stapleton that it should be done at cost without any sum being charged for overheads or profit because the company wished to keep its workforce together before undertaking various projects in Europe. The equipment and furniture for the swimming pool were purchased and paid for by Stapleton Consultancies “a Firm operated by the Defendant and Mrs Stapleton”. It was alleged that the total value of all the works, material, furniture and equipment, including that paid for by Stapleton Consultancies, did not exceed £60,000 in value.[65]Mrs Stapleton also pleaded an agreement made in or about 1987 between the company and herself whereby the company would use The Spindles to accommodate and entertain overseas clients and important visitors of the company, and she would be paid £100 per week and any costs incurred. Accommodation and entertainment was alleged to have been provided and a claim made for £13,409.78.[66]The liquidator’s claim as to the value of the work carried out at The Spindles is based on the evidence of Mr Ford in his letter dated 10 February 1984, supported by his statement, in which he itemised the work done in the two phases and valued each phase at approximately £80,000 and £75,000. In his statements he said that he asked Mr Stapleton about the costs of the works. Mr Stapleton replied that it would be paid from his director’s account with the company or from mortgages obtained by him. When he asked about raising invoices for the works and materials, Mr Stapleton said that this would be dealt with by the accounts office and was nothing to do with Mr Ford. He was told to mind his own business. Mr Ford supplied information, such as time-sheets, to the accounts office.[67]In his statement dated 14 January 1985, Mr Cooke stated that in late 1980 – early 1981 he completed an analysis of the company’s purchase day book in respect of the labour and materials for the first phase of the work at The Spindles. He and Martyn Cook examined each invoice and allocated it as appropriate to that work. The times for labour were taken from time-sheets submitted by Mr Ford. He also, he says consulted Mr Booth as to labour costs, including administrative charges and profit.[68]The total cost for the first phase, without handling charges, was calculated at £117,341, comprising £80,800 for labour and £36,541 for materials. Mr Cooke’s detailed workings are exhibited to his statement. The liquidator himself gives evidence as regards invoices in his possession as liquidator which identify deliveries to The Spindles or have been identified as such by members of the company’s staff. There are over 250 of these invoices, totalling £43,578.35 net of VAT.[69]Mr Cooke also stated in his statement that he was shown by Mr Coles an interim invoice dated 29 November 1982 from the company to Stapleton Consultancies for £35,000 for the works at The Spindles in 1982. Mr Cooke says that this invoice had not been paid by the time he left the company in May 1983.[70]There is no issue that a substantial amount of work was carried out by the company at The Spindles. As the director supervising the work, experienced in construction work, there is no reason to reject Mr Ford’s estimate of the value of the work. On the basis of Mr Cooke’s detailed analysis of the labour and materials, Mr Ford’s estimate may well be a significant underestimate. There is no evidence to support the figure of £60,000 pleaded by Mrs Stapleton in her defence to the proceedings brought in 1985.[71]Mr and Mrs Stapleton have suggested a number of ways in which payment was made for the works. The first is that the first phase was paid by way of set–off against a bonus declared in favour of Mr Stapleton. If there had been such a bonus it would be reported in the audited accounts as part of Mr Stapleton’s remuneration, but the accounts for the 18 months ended 31 March 1981 record his total remuneration as £24,384 which cannot possibly include a bonus of sufficient size to cover the first phase of the works. The same is true of the accounts for the previous period which showed his remuneration as £12,132. In his evidence, the liquidator said that there was no indication either in any of the company’s papers in his possession or in any paper obtained from the auditors of either any bonus or any set-off. I am satisfied that there was neither.[72]There is no evidence to support the assertion in the defence that Mr Stapleton reimbursed the company for the wages paid to the company’s employees for work at the The Spindles. No value is given for “aspects of the building of the pool” alleged to have been paid by personal cheque drawn by Mr Stapleton and there is no evidence of such payments. There is equally no evidence to support the agreement, alleged by Mrs Stapleton in her defence to the 1985 proceedings but not repeated in the defence to the present proceedings, that she was entitled to £100 per week and expenses for the use of The Spindles to accommodate and entertain clients of the company.[73]I find that buildings work to a value of not less than £155,000 were carried out at The Spindles by and at the expense of the company for which it was not paid. 117 Calvert Road, Greenwich[74]117 Calvert Road, Greenwich was the home of Mr Stapleton’s parents and the liquidator claims £23,000 in respect of work carried out to the house by the company for which it was not paid. The defendants admit that work was carried out to the house by the company and, while not making any formal admission, they plead their understanding that the value of the works was approximately £20,000. They plead that the company was paid a proper commercial rate for the works out of funds raised by Mr Stapleton by a loan to him from Hambros Bank.[75]The liquidator’s case as to the value of the work is based on Mr Ford’s estimate which I accept and which is not significantly different from the figure put forward by Mr and Mrs Stapleton. There is no evidence of any payment to the company for these works. The defendants complain that because of the lapse of time Mr Stapleton no longer has the loan agreement with Hambros Bank, but the important point is not whether he took out a loan from Hambros but whether he made any payment to the company. The interim invoice dated 29 November 1982 addressed to Stapleton Consultancies includes a figure of £15,000 for these works, but there is no evidence that it was paid. I find that work to a value of not less than £23,000 was carried out at 117 Calvert Road by and at the expense of the company for which it was never paid. Stapleton Meats[76]Stapleton Meats Limited was incorporated in 1979 and carried on a butchers’ business which was run on a day to day basis by Mr Stapleton’s brother Gabriel. Mr Stapleton and his brother were directors, as was Mrs Stapleton. According to Mr Cooke’s statement, Mr Stapleton owned 98% of the issued shares, with the remainder owned by his brother.[77]Mr Ford stated in his letter dated 10 February 1984 that the company carried out alterations to the butchers’ shop and shop fitting to a value of approximately £15,000 and built a cold store at the shop premises to a value of approximately £5,000. The liquidator claims £20,000 in respect of these works.[78]In their defence, the defendants accept that work was carried out by the company, although there is no admission as to its value, but allege that the company was paid out of funds from a loan advanced by Mercantile Credit for this purpose.[79]The liquidator has identified a credit of £12,000 to the company’s current account with Lloyds Bank on 15 July 1980 which is identified as being in respect of Stapleton Meats. Mr Cooke in his statement states that a payment of £11,000 - £11,500 was made to the company out of funds borrowed from Barclays. This would appear to be the sum of £12,000 referred to above; Mercantile Credit was a subsidiary of Barclays. This evidence can only refer to a borrowing by Stapleton Meats from Mercantile Credit/Barclays. There is no connection with a loan of some £125,000 by Mercantile Credit to the company. Mr Cooke goes on to say that the balance was offset by the supply of meat which was booked against the company for entertaining guests. The liquidator has found among the company’s papers invoices for meat totalling £4,829.26 supplied by Stapleton Meats over a 58 week period. As the liquidator relies on Mr Cooke’s evidence as regards Stapleton Meats, he cannot, in the absence of evidence to the contrary, disclaim the evidence that the meat was supplied for the purpose of entertaining the company’s guests and he does not seek to do so, although he does express the view that there must have been a considerable element of private benefit to Mr and Mrs Stapleton.[80]The approach adopted by the liquidator in his principal affidavit is to give evidence of what he says were other misappropriations in favour of Stapleton Meats, which would more than absorb the payment of £12,000 and the cost of the meat, and to claim without any deduction £20,000 for the building costs. This is not a permissible approach. Any additional alleged misappropriations should have been pleaded, either to increase the claim or to absorb sums for which credit should otherwise be given. As it is, misappropriations amounting to £20,000 are pleaded and the evidence establishes that credit should be given for a total of £16,829.26. The claim in respect of Stapleton Meats is therefore limited to £3,170.74. Astro Centre (Hull) Limited[81]Astro Centre (Hull) Limited (“Astro (Hull)”) was owned as to 80% by Mr Stapleton and as to the balance by two solicitors as trustees. Mr and Mrs Stapleton were its directors until 23 March 1982 when Mrs Stapleton was replaced by Mr Coles. The liquidator suggests that the 20% holding was held for Mrs Stapleton. It is alleged in the particulars of claim that Astro (Hull) was owned by the defendants and this is not denied in the defence, although other parts of the sub-paragraph dealing with the claim in respect of Astro (Hull) are specifically addressed in the defence. It seems entirely likely that the 20% shareholding were held for Mrs Stapleton and I so find.[82]Astro (Hull) owned land at Sutton Fields Industrial Estate, Hull at which a squash club was built between December 1980 and June 1981. It is common ground that the building work was carried out by the company. In his letter, Mr Ford estimated the approximate cost of the work at £900,000. Mr P. R Copp, a partner in the company’s auditors who worked on the audit, gave evidence in his statement that they were advised orally by Mr Coles that the work was worth some £750,000. Information provided by the auditor shows that £540,000 had been invoiced as at 31 March 1981, but the work was not then complete. There is evidence that a price of £600,000 including profit was agreed. This is referred to in a memo sent on 2 April 1982 by Mr Coles to Mr Cooke concerning certain invoices and adjustments which he said were needed for the year ending 31 March 1982. Three items related to Astro (Hull):
“(a) Unisquash (Hull) Limited will invoice Ultraleisure Limited for £124,561 in respect of finance charges and consultancy fees on the establishment and development of squash in Scandinavia. (b) Ultraleisure Limited will invoice Unisquash (Hull) Limited for £600,000 which is now the agreed construction price including profit for the Unisquash (Hull) Limited property. (c) Ultraleisure Limited will invoice Unisquash (Hull) Limited for £10,000 (please put in correct figure) for chairs, tables etc purchased by Ultraleisure on Unisquash (Hull) Limited’s behalf.”
[83]From information obtained while auditing the accounts of Astro (Hull) for the year ended 31 March 1982, which was never completed, the auditors were also able to say that an agreed total cost of £600,000 was reflected in Astro (Hull)’s books.[84]The liquidator does not accept that £600,000 properly reflected the value of the building works carried out by the company. The agreed price of £600,000 was reached long after the work had started and quite possibly after it had been completed, and as both companies were controlled by Mr Stapleton it was not the result of an arms-length negotiation. In the face of the evidence that the work was worth £750,000 or £900,000, I do not accept that £600,000 was a proper price for the work.[85]Mr McDonnell on behalf of the company was prepared to accept £750,000 as the value of the works. From this value there must be deducted the sums paid by Astro (Hull) to the company. The information provided by the auditors showed that as at 31 March 1981 payments totalling £387,500 had been made. This leaves a shortfall of £362,500. The auditor referred also to a further payment of £60,000 after 31 March 1982 but this was in fact part of a loan raised by the company from Mercantile Credit, to which I refer when dealing with payments to Lumiere Limited.[86]Attempts were made to reduce further the amount due from Astro (Hull) to the company. An invoice bearing the date 30 June 1981 was shown to Mr Cooke by Mr Stapleton and Mr Coles in June 1982 and he was instructed to enter it in the company’s daybook. He questioned its validity but he was instructed to enter it. It was for £84,000 plus VAT in respect of “12 months guaranteed usage of the centre including food and drink” at £7,000 per month. There is no justification in the evidence for this charge which I find was imposed simply to reduce the indebtedness of Astro (Hull). A one-off charge of £3,750 plus VAT was made allegedly for food and drink at the opening ceremony. There is no reason why the contractor should be responsible for this expenditure. Finally, in the memo dated 2 April 1982 from Mr Coles to Mr Cooke quoted above, paragraph (a) refers to an invoice for £124,561 in respect of “finance charges and consultancy fees on the establishment and development of squash in Scandinavia”. The company did not establish or develop squash in Scandinavia and Astro (Hull) provided no services to that end. In his statement, Mr Cooke described it as false and fraudulent, being a “dummy invoice…required to prop up the year end accounts”.[87]I am satisfied that none of these charges was properly made against the company and that the evidence establishes that the company carried out work for Astro (Hull) for which it was not paid to a value of £362,500. This was a benefit conferred on a company owned as to 80% by Mr Stapleton and as to the balance by Mrs Stapleton, for which the company received no benefit and which therefore constituted a breach of duty by those responsible for it. Lumiere Limited : building works[88]Lumiere Limited (”Lumiere”) was owned as to 80% by Mr Stapleton and as to the balance by trustees. It is alleged in the particulars of claim that it was owned by the defendants and this is not denied in the defence. I find that the balance of 20% was held for Mrs Stapleton. It was ordered to be wound up on 29 April 1985. Lumiere owned factory and office premises at Station Road, North Hykeham and it is common ground that the company carried out building works at Lumiere’s premises between November 1980 and May 1991. The liquidator alleges that the work was worth at least £120,000, being the value put on it by Mr Ford and confirmed by Mr Cooke in his statement. There is no evidence that it was worth less than this, and I accept this figure.[89]The pleaded defence is that Lumiere paid for the works out of a mortgage loan raised for the purpose from Norwich Union. There is no evidence of payments to the company. I find as a fact that the company was not paid for this work which was carried out for no benefit to the company. It was a breach of duty to cause the company to do this work without receiving payment for it. Payments to Lumiere Limited[90]The liquidator claims £580,000 in respect of payments made by the company to Lumiere for no benefit to the company or other proper purpose. The defendants admit in their defence that from time to time payments may have been made by the company but deny that any were gratuitous transfers without proper justification.[91]There are a number of different payments involved. On the basis of an invoice dated 8 June 1981 purportedly in respect of an artificial ice-rink measuring 250 sq.m, the company raised £125,293.65 from Mercantile Credit. Mr Ford and Mr Peter Podgham, a sub-contractor, provided information that the ice-rink, which was at Hull but has since been demolished, was no more than 100 sq.m. The company’s auditors were told that the Hull centre was partially financed by borrowings of £60,000 from Mercantile Credit. The balance of the actual borrowing from Mercantile Credit, amounting to £65,293.65 was paid by cheque to Lumiere on 15 June 1981. There was no consideration or other benefit for this payment.[92]The liquidator has identified further payments totalling £434,775 made during the year ended 31 March 1982 by the company to Lumiere which were not in the ordinary course of business. All except one were for round figures in thousands and two were for very large sums, (£200,000 and £100,000). The remaining six were for sums between £15,000 and £30,000.[93]The company’s records contain various entries which might be said to justify these payments or some of them.[94]First, during the year ended 31 March 1982, a sum of £38,788 was charged to the company by Lumiere. The company’s auditors were told that it was “to recoup financial costs in connection with a factory extension undertaken to increase capacity in respect of anticipated demand from that company”. The company was the contractor for the factory extension. I agree with the liquidator that it is bizarre for the contractor to pay the employer’s financial costs incurred on the extension, whether or not the extension was built in anticipation of demand from the company. I find that this was an unjustified and bogus charge.[95]Secondly, entries were made in the books of the company and Lumiere whereby a sum of £50,000 previously shown as due from a Belgian company called La Belgo Nordique SA to Lumiere was shown as due from the company. The basis of the alleged debt was an invoice dated 31 March 1981 purportedly issued by Lumiere to La Belgo Nordique for £50,000 in respect of the sale of six foldaway squash courts and six ring beam squash courts. The managing director of La Belgo Nordique confirmed to the liquidator and his solicitor that his company had no accounting position with Lumiere. This corroborates Mr Cooke’s evidence that it was a false invoice prepared on instructions given by Mr Stapleton to him and to a director of Lumiere.[96]The alleged arrangement whereby the company was substituted for La Belgo Nordique as the “debtor” was contained in a letter bearing the date 30 March 1982 from Mr Stapleton to Mr Bribosia and apparently counter-signed by Mr Bribosia. Mr Bribosia denies that he ever saw this letter or counter-signed it. In the absence of any evidence from Mr Stapleton, I find that no arrangement was made for the assumption by the company of this liability and that there is no basis for the company to be treated as having owed this sum of £50,000 to Lumiere.[97]Thirdly, the company was shown in its records as owing £173,828 in respect of “Sales invoices in respect of Denmark”. There are six such invoices totalling £173,828, bearing dates between November 1981 and March 1982. They purportedly relate to the supply of labour and materials for completion of joinery and furnishings at two leisure centres built by the company in Denmark. Mr B.O.L. Olsen, a Danish citizen involved in assisting with the construction of these leisure centres, gave evidence in his statement that he had never seen these invoices and that they were false. The relevant works and supplies were not carried out or made by Lumiere, but by various Danish firms. Moreover, the invoice dates are too early, as the centres were not by then ready for the alleged work, and the cost is too high, a point endorsed by Mr P Podgham who worked as a sub-contractor on the two centres. This corroborates Mr Cooke’s evidence that there were fake invoices produced on the instructions of Mr Coles. I find that they were false invoices and that nothing was due from the company to Lumiere in respect of them or the labour and materials to which they purportedly relate.[98]Fourthly, the company’s records show that it paid just over £112,000 in respect of PAYE and NIC due from Lumiere. It is not suggested that the company had any obligation for this sum and there was no basis on which it was properly payable by the company.[99]I am satisfied that there was no justification for the sums paid by the company to Lumiere to which I have earlier referred.[100]The accounting records of the company showed as at 31 March 1982 a sum of £100,308.11 due from the company to Lumiere. This was largely based on the false invoices for £50,000 and £173.878 discussed above, giving credit for the PAYE/NIC of £112,000. In September 1981 a sum of £100,000 was paid by the company to Lumiere in respect of this alleged balance. This payment was also therefore without any justification.[101]The liquidator’s evidence would suggest that a sum in the region of £700,000 was misappropriated in favour of Lumiere but the liquidator confines himself to the pleaded claim of misappropriations amounting to £580,000 which I find to be established. Payments to Realta Limited[102]The only shareholder of Realta Limited (“Realta”) was Mrs Stapleton. Its directors were Mr and Mrs Stapleton and Mr Coles. It was ordered to be wound up on 3 December 1984.[103]The liquidator has identified ten payments made by the company to Realta totalling £49,632.35 between May and September 1982 and in April 1983. In March 1983 the company received £25,000 from Realta.[104]By May 1982 the only work being undertaken by the company was at The Spindles and at 117 Calvert Road and such outstanding works, if any, on the extension to the Lincoln premises, so that there was little, if any, third party trading activity.[105]The liquidator accepts that two payments totalling £11,932.35 may have been justified, but there is no apparent justification for the rest. As with the payments to Lumiere, the pleaded defence is that payments may have been made but it is denied that any were gratuitous transfers without proper justification. Giving credit for the sum of £25,000 received from Realta, I find that the liquidator’s claim that £12,700 was misappropriated is established.

Payments to Lumiere Leisure (Exports) Limited

[106]This company (“Exports”) was owned as to 80% by Mr Stapleton and the balance of 20% by trustees. Although the trustees first held the shares in 1976, some years before Mr and Mrs Stapleton were married, the allegation pleaded in the particulars of claim that Exports was owned by the defendants is not denied in the defence, and I find that at any rate by the time of their marriage the shares were held for Mrs Stapleton. Mr Stapleton was a director. It was ordered to be wound up on 5 December 1983.[107]Payments totalling £91,076 were made by the company to Exports and remained outstanding as at 31 March 1981. The liquidator claims that these payments, together with an unexplained payment of £5,000 made on 9 November 1981, were misappropriations. The alleged justification was that Exports provided services to the company by promoting exports, but it had no staff and the services were in fact provided by the company and its own staff. The liquidator deducts a total of £38,400 fictitious management charges purportedly made by the company to Exports and claims that £57,676 was misappropriated. The pleaded defence is again that payment may have been made but it is denied that there were any gratuitous transfers without proper justification.[108]The evidence establishes that these payments were made without justification and I find the liquidator’s claim that £57,676 was misappropriated to be established. Payments to Mr and Mrs Stapleton[109]The liquidator claims £65,000 in respect of unjustified payments to or for the benefit of Mr and/or Mrs Stapleton personally. In their defence, they admit that from time to time payments may have been made to them but they deny that any were gratuitous payments without any proper justification. They say that so far as payments were made in addition to their salary they were reimbursements of expenses incurred whilst acting on behalf of the company. They also say that these payments were set off against loans made by them to the company, but there is no evidence of such loans or set off.[110]The sums claimed include £2,600 paid for a dining table and chairs bought for The Spindles, £5,000 in respect of a trip to New York by Concorde with the return journey on the QE2, £4,908 in respect of a holiday in Florida in January 1982, £2,000 in respect of a further holiday in 1982 and £2,406 for wine delivered to The Spindles in January 1982. Mr Cooke gave evidence of these expenses as did Mr M.N. Cook, and in the case of the holiday in Florida and the purchase of the wine and the table and chairs, his evidence is corroborated by invoices. All the items were set out in the particulars provided in July 2006 but no response of challenging any of the individual items was made. I accept that all these payments were made for the benefit of Mr and Mrs Stapleton. Unexplained payments totalling £26,365 were made to Mr Stapleton in October 1981 and February 1982 and an unexplained payment of £3,000 was made to Mrs Stapleton in October 1981. Further unexplained payments totalling £11,777 were made to Mr and/or Mrs Stapleton (but the liquidator cannot say which) in July and November 1981 and September 1982. Unexplained credit card expenditure of £3,312 by Mr Stapleton, over and above that shown in the records as expenses, was paid by the company in March 1982.[111]I find that none of this expenditure or payments was properly paid by the company. The liquidator seeks also to claim under this head the cost of the meat supplied by Stapleton Meats but for reasons given earlier, this is not, in my judgment, recoverable. I therefore find established the liquidator’s claim that a total of £61,638 was misappropriated by way of expenditure for the benefit of, and payments to, Mr and Mrs Stapleton. Compensation paid to Mrs Stapleton[112]By 1982 Mrs Stapleton was employed by the company at an annual salary of £10,000. Her employment ceased in early 1982 and she was paid £25,000, purportedly as compensation for loss of office. The liquidator claims that there was no justification for this payment which was simply a gratuitous payment to her. In the defence it is admitted that the payment was made but it is alleged that it was paid after legal advice and as a result of discussions and negotiations between Mr M. Krantz of Courts & Co, solicitors acting for the company, and Matthew Trackman & Fry for Mrs Stapleton. It is further pleaded that the payment was disclosed to the Inland Revenue and approved by the company’s accountants and auditors.[113]There is in evidence a letter dated 6 January 1982 from Mr Stapleton to Mr Krantz seeking advice as to the level of compensation payable to Mrs Stapleton in view of the fact that Mr Coles’ return to a full-time position as financial director would make her role as administration director redundant. There is no evidence of any advice received from Mr Krantz.[114]There would have been three bases on which compensation might have been payable. First, if Mrs Stapleton was made redundant as the latter dated 6 January 1982 contemplates, she would have had a statutory right to one week’s salary for every year of her employment. Her employment commenced on 9 April 1973 and her weekly salary by 1982 was a little under £200. Assuming her employment ceased on or about 9 April 2002, she would therefore have become entitled to a redundancy payment of just under £1,800.[115]Secondly, she would be entitled to notice. Her terms of employment as general administrator were set in 1977, with later salary increases in salary. The terms are not in evidence, but at their most generous they are highly unlikely to have entitled her to more than six months’ notice. If no notice were given, she would therefore at most be entitled to £5,000.[116]Thirdly, if she were unfairly dismissed, she would have been entitled to compensation under the Employment Protection (Consolidation) Act 1978. Statutory compensation comprised a basic award and a compensatory award. For practical purposes, the basic award would be the same as the redundancy entitlement and she would not recover both. In 1987 the maximum compensatory award was £6,250 but credit would be given for any payment in lieu of notice.[117]It follows that Mrs Stapleton could not on any footing have become entitled to more than about £8,000 and it is impossible to see how either she or the company could have been advised that she might be entitled to a larger sum.[118]In my judgment, the payment of £25,000 was so far in excess of any sum that could be justified that, as regards the excess, it was a misappropriation of the company’s funds. I find that as regards £17,000 the payment of purported compensation to Mrs Stapleton was a misappropriation. Disclosure to the Inland Revenue would not make it a proper payment and there is no evidence of approval by the auditors, who did not in any event audit the accounts for the year in question. Funds raised for the construction of two sports centres in Denmark[119]Through two Danish subsidiaries, the company constructed two sports centres in Denmark. The company raised over £4.4m purportedly to fund the construction of the centres. The true cost of the work was however very substantially lower. Mr Ford, who was personally supervising the work in Denmark, estimated the combined cost at £2.3m. This estimate is largely supported by Mr Olsen who gave evidence in his statement of discussions with an architect and an engineer in which it was estimated that each centre would cost £1.2m.[120]Of the total sums raised, £1m was used to repay earlier borrowings, leaving some £3.4m. Approximately £1.829m was applied to the construction costs, on the basis of Mr Ford’s estimate and the fact that suppliers with debts totalling £471,000 were not paid. Of the balance, the liquidator’s other claims account for £460,000 and he has identified £110,000 of legitimate non-building costs. This leaves unaccounted for a sum of £1,001,000 and the liquidator invites the court to infer that it was misappropriated. The pleaded defence is simply a denial of misappropriation by the defendants.[121]In her witness statement of 19 November 2008, Mrs Stapleton stated that Mr Ford had responsibility for the funds for the Danish sports centres and that if funds intended for Denmark were misappropriated then Mr Ford should have been investigated. The evidence establishes that an account in the name of the company called the “Danish Account” was opened in August 1981 with Lloyds Bank for which Mr Ford was supplied with a chequebook so that he could pay for supplies, services and labour in Denmark. This arrangement continued until 1 March 1982 when Mr Coles and Mr Stapleton took over the chequebook and assumed responsibility for payments from the account. The statements for the account are in evidence and there is no basis for suspecting any misappropriation by Mr Ford of funds from the account.[122]In the absence of any credible evidence as to how the excess funds were applied, I find the claim that £1,001,000 was misappropriated to be established.[123]There exist invoices for a total of £145,000 issued by a firm called Stapleton Consultancies from which the liquidator invites the court to infer that of the misappropriated funds at least £145,000 was paid to that firm. The invoices purported to relate to the Danish sports centres. They were originally issued to the company but were later cancelled and replaced with invoices issued to a Swiss subsidiary of the company. I agree that there would be no point in re-issuing the invoices if they were not going to be paid and that it is a reasonable inference that they were paid out of funds derived from the funds raised for the Danish contracts. Moreover, there is no evidence to justify the invoices at all. Tax assessment[124]By reason of the alleged misappropriations, HMRC have assessed the company to tax under s.286 of the Income and Corporation Taxes Act 1970 in a total sum of £1,538,619.20 for which, together with interest and penalties, HMRC have proved in the liquidation. To the extent that the misappropriations are established, the company is entitled to be indemnified or compensated by those responsible in respect of the resulting assessments, interest and penalties. Liability of the defendants[125]I have found the misappropriations established to the extent set out in the preceding paragraphs. I turn to consider the extent, if any, of each defendant’s liability in respect of such misappropriations. As previously mentioned, the pleaded case is that they dishonestly misappropriated the sums claimed. Anything less than fraud as understood for the purposes of s.21 of the Limitation Act is insufficient on grounds of limitation. Liability of Mr Stapleton[126]Mr Stapleton at all times owned 80% of the company and was its chairman and managing director. There can be no doubt that he was fully in control of the company and its affairs. Mr Ford described him as a very strong-willed character who always got his own way. His view was that the company was:
“ a “one man firm” and that we Directors were there, merely to make the notepaper look better. The decisions were almost always made by Mr Stapleton, without prior consultation to fellow Directors, and steam rollered through, Directors Minutes being produced to match R.F. Stapleton’s decisions. ”
The situation he describes is not uncommon in the case of private companies owned and controlled by one person. Mr M.N. Cook described how the personal sanction of Mr Stapleton or later, either Mr Stapleton or Mr Coles was needed for any payment to creditors.[127]In my judgment, it is in the highest degree unlikely that any of the payments or transactions which are the subject of this claim were not personally authorised by Mr Stapleton. This stems both from his control of the company and from the direct or indirect personal benefit which he derived from then. I hold that he is liable in respect of all the claimed misappropriations to the extent which I have found them established. Liability of Mrs Stapleton[128]The position of Mrs Stapleton is by no means the same as her husband’s. She was first employed by Mr Stapleton’s companies in April 1973. She worked as his secretary and assumed responsibility for the administration of the company but not, as it appears from the evidence, for its accounting functions. Mr Ford said that, like her husband, she was strong-willed and that she hired and fired the female clerical staff. She was appointed as general administrator under a service contract dated 1 January 1977 and was appointed a director of the company on 16 October 1978. In 1980 she and Mr Stapleton were married.[129]Mrs Stapleton ceased to be employed by the company in the first half of 1982. She resigned as a director but there is uncertainty as to the date. There exists a document, signed by Mr Stapleton, purporting to be the minutes of a board meeting on 31 March 1982 recording the resignation of Mrs Stapleton and Mr A.E Parrish. The minutes record Mr Cook and Mr Parrish as being present, but both later in the course of the police investigation endorsed the minutes to say that they were not present. The notice of the resignation of Mrs Stapleton and Mr Parrish, though dated 1 April 1982, was not registered at Companies House until 11 March 1983.[130]There are indications in the evidence that Mrs Stapleton did resign at the end of March 1982. In his statement, Mr Parrish states that he had submitted his resignation in late 1981 or early 1982 but he later checked at Companies House and found that it had not been registered. Registration is not, however, required for the resignation to be effective. In October 1982, notice of Mrs Stapleton’s resignation as a director of Astro Centre (Hull) Limited at a meeting on 23 March 1982 was registered. It was in or about March 1982 that her employment with the company ceased. On balance, I think it likely that Mrs Stapleton did resign as a director of the company on 31 March 1982, as was also pleaded in her defence in the action brought in 1985. The defence in the present case pleads that she resigned as a director of the company “so far as she recalls around 1979/1980, prior to her marriage” to Mr Stapleton. This is clearly wrong.[131]The liquidator submits that Mrs Stapleton is equally responsible with Mr Stapleton for the misappropriations. She was a director. She was fully involved in the frauds on ECGD and the banks. She benefited from many of the misappropriations either directly or through her 20% interest in recipient companies. The intention in April 1982 was to group some or all of the companies under Realta as a new holding company, of which she was the sole beneficial owner, although this proposal was not in the event put into effect. Her defence and witness statement do not seek to draw a distinction between her position and that of Mr Stapleton.[132]It is, however, very striking, reading the statements, that there is very little evidence of her involvement in the company or its business, whereas Mr Stapleton features largely. Mr Olsen makes the point that as regards the Danish activities she “in no way acted in the capacity of a Director of any English Company”. While her role in the production of forged documents for the purposes of the fraud on ECGD and the banks is clear, there is a virtually complete absence of any evidence linking her with the making of any of the payments, leaving aside those made to her or for her own direct benefit.[133]In my judgment there is simply not the evidence that Mrs Stapleton had any involvement in the payments to associated companies or the misappropriation of funds raised for the Danish contracts. It is not enough to point to her dishonest involvement in the raising of the funds. A finding of dishonest misappropriation from the company requires more evidence than this. Nor is there evidence of any practical engagement as a director of any of the recipient companies as would give rise to a finding that she knew of the misappropriations in that capacity.[134]The position is different as regards those misappropriations from which Mrs Stapleton directly benefited – the works done at The Spindles, the personal expenditure for the benefit of herself and her husband (holidays, the dining room table and chairs and the wine), and the alleged compensation for loss of office. As regards the payments by cheque made by the company to Mr and Mrs Stapleton, only one cheque drawn on the Danish account, for £3,000, was paid to Mrs Stapleton. The liquidator cannot show that any of the payments from the current account were made to her. She is, in my judgment, liable only in respect of the payment to her. I am satisfied that as regards all these transactions from which she directly benefited, that she must have known that they represented payments or benefits from the company to which she was not entitled. Finally, there is the payment of £145,000 to Stapleton Consultancies which was, according to her defence in the 1985 action, a firm operated by her husband and herself. The payment was made by the company’s Swiss subsidiary out of funds derived from the finance raised by the company for the Danish contracts. As a joint operator of Stapleton Consultancies, she must have known that there was no justification for the invoices. Although not a director of the company when they were paid, their payment involved a fraud on the company to which she was a party and is therefore liable with Mr Stapleton on a claim which falls within the pleaded case and within s.21(1)(a) of the Limitation Act. Conclusion[135]Accordingly, I find that the company establishes its case against Mr and Mrs Stapleton in respect of expenditure on The Spindles (£155,000), payments to Mrs Stapleton or for their joint benefit (£19,914), payments to Stapleton Consultancies (£145,000) and excessive compensation for loss of office (£17,000). They are therefore jointly and severally liable to compensate the company in the sum of £336,914.Mr Stapleton is separately liable to compensate the company in the additional sum of £2,056,500, comprising: expenditure on or for the benefit of 117 Calvert Road (£23,000), Stapleton Meats (£3,170), Astro (Hull) (£362,500) and Lumiere (£120,000); payments to or for the benefit of himself (£41,454), Lumiere (£580,000), Realta (£12,700) and Exports (£57,676); and the misappropriation of £856,000 (£1,001,000 less £145,000) from the funds raised for the Danish contracts. As regards the liability to tax, the joint and several liability of Mr and Mrs Stapleton and the separate liability of Mr Stapleton are increased by the amount of tax attributable to the misappropriations for which they are respectively liable.[136]I will hear further submissions on the company’s claim for interest and such other orders as may be sought.

order

first, Mrs Stapleton’s applications for an adjournment of the trial; secondly, issues arising out of the lapse of time between the commencement of the liquidation and the present proceedings; thirdly, whether the alleged misappropriations occurred and, if so, their amounts; and fourthly the responsibility of Mr Stapleton and of Mrs Stapleton for the misappropriations which are established. Applications for adjournment